Spending on Physician Services Crawls Out of Recession

January 07, 2013

A slowly improving economy drove a 3.6% increase in spending on physician services in 2011, a noticeable improvement over 2.8% growth the year before, the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) reports.

Total healthcare spending in the public and private sectors rose 3.9% to reach $2.7 trillion in 2011, according to a study by CMS economists and statisticians published online today in the journal Health Affairs. That total healthcare spending growth rate, a repeat of 2010 and 2009, is the lowest in the last 52 years and represents the fallout of a recession that officially ended in June 2009. In 2010 and 2011, total healthcare-spending growth closely mirrored the rise in the gross domestic product (GDP), 3.8% and 4%, respectively, according to the CMS Office of the Actuary.

As a percentage of GDP in 2011, total healthcare spending is 17.9%. It has been stuck at this level since 2009.

CMS takes an annual look at healthcare outlays, and its numbers are sure to receive close scrutiny from the Obama administration and Congress as they look for ways to cut Medicare and Medicaid. Federal spending on healthcare in 2011 represented 28% of the grand total, the same percentage as in 2011 and just a tad over 27% in 2009.

Some of the biggest jumps in spending in 2011 occurred in the categories of durable medical equipment (5.3%), home healthcare (4.5%), nursing-care facilities and continuing-care retirement communities (4.4%), and hospital care (4.3%). However, only the category of nursing-care facilities and continuing-care retirement communities grew faster than it did in 2010.

Outlays for prescription drugs lagged behind the industry pace with just a 2.9% increase. It was a better showing than in 2010, when spending on prescription grew by a mere 0.4%. However, a slowdown in prescribing growth and greater reliance on low-cost generics helped put the brakes on this category.

Intensity of Service Made a Difference for Physicians

Another major spending category is physician and clinical services, which registered a 4.3% gain in 2011. Clinical services, constituting about 20% of the dollar volume, include outpatient family planning and mental health centers, ambulatory surgical centers, and medical and diagnostic laboratories. What accounted for this category's growth was not so much the price of services, which rose only 1.4%, but "non-price factors, such as the use and intensity of services." An example of a more intense service is a level-4 office visit for an established patient as opposed to a lower-paying level-3 visit.

Unpublished data that CMS provided to Medscape Medical News show how spending growth for physician services — as opposed to the entire category — decelerated after the recent recession, until the 2011 increase. Figures for some years, such as 2010, differ somewhat from those released in previous years as a result of new data becoming available.

Table. Annual Growth in Spending on Physician Services

Year Spending Growth on Physician Services
2001 9.7%
2002 8.4%
2003 8.3%
2004 7.0%
2005 6.0%
2006 4.9%
2007 4.8%
2008 5.1%
2009 2.7%
2010 2.8%
2011 3.6%

Source: Centers for Medicare & Medicaid Services, Office of the Actuary.

The authors have disclosed no relevant financial relationships.

Health Aff. Published online January 7, 2013. Abstract

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